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Financial Accounting Cheat Sheet, Cheat Sheet of Financial Accounting

Accounting concepts, basic accounting equations, adjusting entries, closing entries, inventory, cash, bad debts, bonds, cash flow statements and other chapters cheat sheet

Typology: Cheat Sheet

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Characteristics Assumptions Principles Constraints
Understandability
Relevance
Comparability
Reliability
Monetary unit
Economic entity
Time period
Going concern
Revenue recognition
Matching
Full disclosure
Cost
Materiality
Cost-benefit
KIMMEL RAPID REVIEW
Financial Accounting: Tools for Business Decision-Making, Third Canadian Edition
ACCOUNTING CONCEPTS (Chapters 1-4)
ADJUSTING ENTRIES (Chapter 4)
Type Original Entry Adjusting Entry
Prepayments 1. Prepaid expenses Asset account
Cash
Expense account
Asset account
2. Unearned revenues Cash
Liability account
Liability account
Revenue account
Accruals 1. Accrued revenues No entry Asset account
Revenue account
2. Accrued expenses No entry Expense account
Liability account
Note: 1. Each adjusting entry will affect one or more statement of earnings accounts
and one or more balance sheet accounts.
2. Adjusting entries never include the Cash account.
Interest Calculation
Interest = Face value × Annual interest rate × Time (# of months ÷ 12)
CLOSING ENTRIES (Chapter 4)
Purpose
1. Update the Retained Earnings account by transferring net earnings (loss) and
dividends to retained earnings.
2. Prepare the temporary accounts (revenue, expense, dividends) for the next
periodʼs postings by reducing their balances to zero.
ACCOUNTING CYCLE (Chapter 4)
Assets Liabilities Shareholders’ Equity
Assets Liabilities Common Shares Retained Earnings
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Revenues Expenses Dividends
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
BASIC ACCOUNTING EQUATION (Chapter 3)
7
Prepare financial statements:
Statement of earnings
Statement of retained
earnings
Balance sheet
5
Journalize and post
adjusting entries:
Prepayments/Accruals
6
Prepare an adjusted
trial balance
4
Prepare a
trial balance
3
Post to
general ledger accounts
2
Journalize the
transactions
1
Analyze business
transactions
9
Prepare a post-closing
trial balance
8
Journalize and post
closing entries
1
Process
1. To close revenue accounts: Debit each individual revenue account for its balance and credit
Income Summary for total revenues.
2. To close expense accounts: Debit Income Summary for total expenses and credit each
individual expense account for its balance (assuming normal balances).
3. To close income summary: Debit Income Summary for the balance in the account (or credit
if a net loss) and credit (debit) Retained Earnings.
4. To close dividends: Is the balance in the Income Summary account, before transfer to the
Retained Earnings account, equal to the net income (loss) reported in the statement of
earnings? Debit Retained Earnings and credit Dividends for the balance in the account.
STOP AND CHECK: Is the balance in the Income Summary account, before transfer to the
Retained Earnings account, equal to the net income (loss) reported in the statement of earnings?
Does the balance in the Retained Earnings account equal the ending balance reported in the balance
sheet and statement of retained earnings? Are all of the temporary account balances zero?
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Characteristics Assumptions Principles Constraints

Understandability Relevance Comparability Reliability

Monetary unit Economic entity Time period Going concern

Revenue recognition Matching Full disclosure Cost

Materiality Cost-benefit

KIMMEL RAPID REVIEW

Financial Accounting: Tools for Business Decision-Making , Third Canadian Edition

ACCOUNTING CONCEPTS (Chapters 1-4)

ADJUSTING ENTRIES (Chapter 4)

Type Original Entry Adjusting Entry Prepayments 1. Prepaid expenses Asset account Cash

Expense account Asset account

  1. Unearned revenues Cash Liability account

Liability account Revenue account Accruals 1. Accrued revenues No entry Asset account Revenue account

  1. Accrued expenses No entry Expense account Liability account

Note: 1. Each adjusting entry will affect one or more statement of earnings accounts and one or more balance sheet accounts.

  1. Adjusting entries never include the Cash account.

Interest Calculation

Interest = Face value × Annual interest rate × Time (# of months ÷ 12)

CLOSING ENTRIES (Chapter 4)

Purpose

  1. Update the Retained Earnings account by transferring net earnings (loss) and dividends to retained earnings.
  2. Prepare the temporary accounts (revenue, expense, dividends) for the next periodʼs postings by reducing their balances to zero.

ACCOUNTING CYCLE (Chapter 4)

Assets (^)  Liabilities (^)  Shareholders’ Equity

Assets  Liabilities  Common Shares  Retained Earnings Dr. 

Cr. 

Dr. 

Cr. 

Dr. 

Cr. 

Dr. 

Cr. 

Revenues  Expenses  Dividends Dr. 

Cr. 

Dr.  Cr. 

Dr.  Cr. 

BASIC ACCOUNTING EQUATION (Chapter 3)

7 Prepare financial statements: Statement of earnings Statement of retained earnings Balance sheet 5 Journalize and post adjusting entries: Prepayments/Accruals

6 Prepare an adjusted trial balance

4 Prepare a trial balance

3 Post to general ledger accounts

2 Journalize the transactions

1 Analyze business transactions 9 Prepare a post-closing trial balance

8 Journalize and post closing entries

Process

  1. To close revenue accounts: Debit each individual revenue account for its balance and credit Income Summary for total revenues.
  2. To close expense accounts: Debit Income Summary for total expenses and credit each individual expense account for its balance (assuming normal balances).
  3. To close income summary: Debit Income Summary for the balance in the account (or credit if a net loss) and credit (debit) Retained Earnings.
  4. To close dividends: Is the balance in the Income Summary account, before transfer to the Retained Earnings account, equal to the net income (loss) reported in the statement of earnings? Debit Retained Earnings and credit Dividends for the balance in the account. STOP AND CHECK: Is the balance in the Income Summary account, before transfer to the Retained Earnings account, equal to the net income (loss) reported in the statement of earnings? Does the balance in the Retained Earnings account equal the ending balance reported in the balance sheet and statement of retained earnings? Are all of the temporary account balances zero?

Event Perpetual Periodic Purchase of goods Inventory Cash (A/P)

Purchases Cash (A/P) Freight (shipping point) Inventory Cash (A/P)

Freight In Cash (A/P) Return of purchased goods

Cash (A/P) Inventory

Cash (A/P) Purchase Returns Sale of goods Cash (A/R) Sales Cost of Goods Sold Inventory

Cash (A/R) Sales No entry

Return of sold goods (assuming resaleable)

Sales Returns and Allowances Cash (A/R) Inventory Cost of Goods Sold

Sales Returns and Allowances Cash (A/R)

No entry

Adjustment of inventory in accounting records to lower physical count amount

Cost of Goods Sold Inventory

No entry

End of period No entry Closing or adjusting entry required

Perpetual vs. Periodic Journal Entries

Periodic Inventory—Formula for Cost of Goods Sold

Beginning Cost of Cost of Goods Ending Cost of

Inventory Goods Sold Available for Sale Inventory Goods Sold

Inventory Cost Flow Assumptions

Perpetual Periodic Specific identification First-in, first-out (FIFO) First-in, first-out (FIFO) Moving average Weighted average Last-in, first-out (LIFO) Last-in, first-out (LIFO)

CASH (Chapter 7)

Principles of Internal Control

Establishment of responsibility Segregation of duties Documentation procedures Physical controls Independent verification (internal and external) Other controls

Bank

Balance per bank statement Add: Deposits in transit Deduct: Outstanding cheques Adjusted cash balance

Bank Reconciliation

Books

Balance per books Add: Unrecorded credit memoranda from bank statement Deduct: Unrecorded debit memoranda from bank statement Adjusted cash balance

Note: 1. Errors should be offset (added or deducted) on the side that made the error.

  1. Adjusting journal entries should only be made on the books side.

STOP AND CHECK: Does the balance in the general ledger cash account equal the adjusted cash balance?

Event Journal Entry Record credit sales Accounts Receivable Sales Estimate bad debts Bad Debts Expense Allowance for Doubtful Accounts Write-off uncollectible account Allowance for Doubtful Accounts Accounts Receivable Subsequent recovery Accounts Receivable Allowance for Doubtful Accounts Cash Accounts Receivable

BAD DEBTS (Chapter 8)

LONG-LIVED ASSETS (Chapter 9)

Tangible Intangible Property, plant, and equipment Natural resources

Intangible assets, limited lives Intangible assets, indefinite lives

INVENTORY (Chapters 5 and 6)

Ownership

Freight Terms Ownership of Goods FOB Shipping point Buyer FOB Destination Seller

  • = – =

IRREGULAR ITEMS (Chapter 14)

Discountinued operations Statement of earnings (presented separately after earnings from continuing operations) Extraordinary items Statement of earnings (presented separately after earnings before extraordinary items) Changes in accounting principle

Statement of retained earnings (adjustment of beginning retained earnings)

Note: These items are net of income tax.

Order of Preparation Date

  1. Statement of earnings Period ended
  2. Statement of comprehensive income Period ended
  3. Statement of retained earnings Period ended
  4. Balance sheet End of the period
  5. Cash flow statement Period ended

FINANCIAL STATEMENTS

Name of Company

Statement of Earnings

Period Ended

Sales revenues Sales $X Less: Sales returns and allowances $X Sales discounts X X Net sales X Cost of goods sold Beginning inventory $X Purchases $X Less: Purchase returns and allowances X Net purchases X Add: Freight in X Cost of goods purchased X Cost of goods available for sale X Less: Ending inventory X Cost of goods sold X Gross profit X Operating expenses (Examples: store salaries, advertising, delivery, rent, amortization, utilities, insurance) X Earnings from operations X Other revenues (Examples: interest, gains) $X Other expenses (Examples: interest, losses) X^ X Earnings before income taxes X Income tax expense X Net earnings $X

Statement of Earnings (periodic inventory system)

Event Cost Equity

Acquisition Equity Investments

Cash

Equity Investments

Cash

Investee reports

earnings

No entry Equity Investments

Investment Revenue

Investee pays

dividends

Cash

Dividend Revenue

Cash

Equity Investments

CASH FLOW STATEMENT (Chapter 13)

Operating activities ( indirect method )

Net earnings

Add: Decreases in noncash current assets $X

Increases in noncash current liabilities X

Amortization X

Losses on disposals of assets X

Deduct: Increases in noncash current assests (X )

Decreases in noncash current liabilities (X )

Gains on disposals of assets (X )

Cash provided by (used in) operating activities $X

Operating activities ( direct method )

Cash receipts

(Examples: from sales of goods and services to customers, from receipts

of interest and dividends on loans and investments) $X

Cash payments

(Examples: to suppliers, for operating expenses, for interest, for taxes) (X )

Cash provided by (used in) operating activities $X

Comparison of Cost and Equity Methods of Accounting for Long-Term Equity

Investments

Balance Sheet

Name of Company Balance Sheet End of the Period Assets Current assets (Examples: cash, short-term investments, accounts receivable, merchandise inventory, prepaids) $X Long-term investments (Examples: equity investments, debt investments) X Property, plant, and equipment (Examples: land, land improvements, buildings, equipment, natural resources) $X Less: Accumulated amortization X X Intangible assets Limited life intangibles (Examples: patents, copyrights) (net of accumulated amortization) $X Indefinite life intangibles (Examples: trademarks, franchises, goodwill) X X Total assets $X

Liabilities and Shareholders Equity

Liabilities Current liabilities (Examples: notes payable, accounts payable, accruals, unearned revenues, current portion of notes payable) $X Long-term liabilities (Examples: notes payable, bonds payable) X Total liabilities X Shareholders equity Common shares $X Retained earnings X X Accumulated other comprehensive income X Total liabilities and shareholders equity $X

STOP AND CHECK: Total assets on the balance sheet must equal total liabilities and shareholdersʼ equity; and, ending retained earnings on the balance sheet must equal ending retained earnings on the statement of retained earnings.

Name of Company Statement of Comprehensive Income Period Ended Net earnings $X Other comprehensive income Unrealized gains and losses on available-for-sale securities $X Foreign currency translation adjustment $X X Comprehensive income $X

Cash Flow Statement

STOP AND CHECK: Cash, end of the period, on the cash flow statement must equal cash presented on the balance sheet.

FINANCIAL STATEMENTS (Continued)

Name of Company Cash Flow Statement Period Ended Operating activities Note: May be prepared using the direct or indirect method Cash provided by (used in) operating activities $X Investing activities (Examples: purchase / sale of long-term assets) Cash provided by (used in) investing activities X Financing activities (Examples: issue / repayment of long-term liabilities, issue of shares, payment of dividends) Cash provided by (used in) financing activities X Net increase (decrease) in cash X Cash, beginning of the period X Cash, end of the period $X

Statement of Comprehensive Income